Colombia grows FDI in the mining sector with new reforms and guidelines

As Colombia looks to improve investor sentiment and spur an infusion of foreign direct investment (FDI) in the mining sector, the administration of President Iván Duque has outlined detailed plans to reform existing community consultation guidelines, amid legal uncertainty regarding the awarding of project contracts.

In May 2019 María Fernanda Suárez, minister of mines and energy, announced that the government would present a draft of the Concurrence Law to Congress during the second semester of the legislative calendar, which runs from July to December 2019. The proposal seeks to amend the approval process, which defines the rights of local and indigenous communities during project tendering and allows them to register objections to developments that affect their land.

Legal Clarity

If approved, the bill should clarify several ambiguous clauses addressed to community consultation. That uncertainty is rooted in a constitutional phrase that Colombia’s soil is the property of “the nation”: some legal scholars have interpreted it as designating local citizens, while others assert that “the nation” refers to the government.

The matter seemed to be settled in 2016, when the Constitutional Court ruled that local communities had a prerogative to be consulted regarding licence approvals. However, the court followed up in October 2018 in asserting that public consultative bodies did not have the authority to prohibit extractive projects because underground resources fell within the exclusive jurisdiction of national and regional government entities.

The decision came in response to a case brought by the Chinese-Indian company Mansarovar Energy, which was appealing the 2016 rejection of a proposed hydrocarbons project in the Andean department of Meta. The court then ruled in February 2019 that it was not necessary for all mining projects to be approved by public consultation. The law would also further specify the roles of involved parties vis-à-vis extractive activities to assuage the concerns of investors and residents alike.

Industry & Civic Responses

The proposal has largely been welcomed within the mining industry, which has criticised the current system as delegating too much power to communities residing near ore and oil deposits. The director of the National Agency for the Legal Defence of the State also asserted that, as of April 2018, consultations had prevented the collection of up to COP230bn ($78.7m) in additional tax revenue.

Juan Camilo Nariño, president of the Colombian Mining Association, said the bill would help the sector expand into new areas of the country. “It is necessary to increase exploration and production across the whole country,” Nariño said in a statement to local press. “The sector has important challenges [to face] in terms of stabilisation, but we are already seeing positive signs.”

While the mining industry has voiced significant support for the draft legislation, it is sure to face opposition in Congress. Representatives of indigenous communities, environmentalist groups and other civil society organisations have objected to any proposal that would ultimately bypass locals in the formulation of energy or mining projects, and their activism could lead to pushback in public discourse and Congress itself.

Nonetheless, the establishment of clearer process rules and legal authority is expected to increase investor confidence. An uptick in FDI could be key to revitalising the mining sector and expanding production capacities to achieve the administration’s output targets. Germán Arce Zapata, then-minister of mines and energy, testified in court that the aggregate extractive economy solicited 46% of FDI, employed 200,000 workers and generated 9% of GDP value in 2018. Hydrocarbons currently account for the lion’s share of that economic activity, while the value of the mining segment constituted less than 2% of national GDP in 2018. The administration has announced its aim to expand that share by securing $6bn in segment FDI and producing 9m tonnes of coal and 27m tonnes of gold by the end of the administration’s term in 2022.